These increasingly complex financial instruments have contributed to the development of a far more flexible, efficient, and hence resilient financial system than the one that existed just a quarter-century ago.
If only that were so. What's missing from this ideology of faith is a healthy dose of conservative skepticism, and a hard-headed pragmatic response to it—that is, "rules of thumb" developed over generations about minimizing moral hazard and separating sources of contagion (such as firewalls in buildings, akin to the Glass-Steagall Act). That such regulations impinge on the liberty of a few is true, but this small infringement acts as an insurance policy for society at large.
Adam Smith was well aware of the conflict between financial speculation, excessive risk taking, and the negative externalities imposed on broader society. In advocating for restrictions on bank notes he argues:
To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them, or to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed (Smith, The Wealth of Nations, 1981 , 324).
In sum, we succumb to poor economics when we throw out the sensible institutions of the past, not well understanding their role or function in maintaining the stability of the whole system.
ADDENDUM: I just discovered the article, "Modernizing Conservatism" by Steven Hayward of the American Enterprise Institute. He seems to support the pragmatism I've been discussing above:
By allowing their well-reasoned and often well-founded critiques of government action to metastasize into a categorical rejection of all prospective government action, while continuing to deny the basic political economy of the welfare state, conservatives increasingly find themselves in an ideological and practical straightjacket…. conservatives must rethink their sweeping rejection of public investments in public goods such as science research and useful infrastructure. Once upon a time, conservatives supported large infrastructure projects, such as dams, water projects, the interstate highway system, and the Apollo project. It is generally forgotten now that President Reagan supported both the international space station and the superconducting supercollider.